The committee met to hear testimony regarding state contracting and Article II of the budget. This report focuses specifically on state contracting discussions.
Julie Ivie, LBB
- To the extent that state purchasing is managed centrally, it is done by two agencies Texas Procurement and Support Services (TPASS) at the Comptroller’s office and the Department of Information Resources
- There are many exceptions to the management and oversight that TPASS provides, some in statute
- Additional oversight mechanisms include the Governor’s office, LBB and the State Auditors’ office
- There is a new rider in Art. IX that applies to all agencies; provides that state agencies and higher education institutions cannot expend funds toward a contract or make a purchase without providing extensive notice to LBB, State Auditor and legislative leadership; applies to all contracts in excess of $10 million and any emergency purchases made without competitive bidding
- Sen. Carlos Uresti asked if agencies have to use TPASS right now
- If it is a purchase of a commodity over $25,000 the agency can request that TPASS make the purchase
- Sen. Royce West asked what other procurement methods are available to agencies
- Not sure; would be better to ask agencies or TPASS
- West noted there are a lot of different methods and competitive bidding is just one of them
- Sen. Joan Huffman asked about a TPASS exemption for professional and consulting services
- There are different statutory requirements for those; selected based on demonstrated competence; those in excess of $15,000 must be approved by the Governor
- Huffman asked about purchases from public utilities
- That would just be purchasing energy from a public utility
- Huffman asked about competitive bidding versus best value; if a competitive bid is out does an agency have to take the lowest bidder
- There is still flexibility in making the choice
- Sen. Paul Bettencourt noted there are not strict top down requirements for contracting
- There is a best practices document or manual
- Bettencourt asked if there are regular trainings for purchasing
- The contract advisory team does help with that
- Bettencourt noted there is a lot of work to do
- Watson noted it is important to be thoughtful and not create unintended consequences if lowest price is the only factor and poor quality comes as a result
- Uresti asked about renewal processes
- If a contract has a renewal provision and the agency wishes to, they can just renew without another bid
- West asked about legacy contracts; it seems in many instances that the same contractors win time after time; would be helpful to see who those legacy contractors are
- Agencies are required to report certain contractors based on dollar amounts of contracts; would go in and see who the major vendors are
Jennifer Wiederhold, State Auditor’s Office
- Provided the committee a summary of some recent audits the agency performed
- State agencies generally complied with contract planning and formation requirements for the 14 contracts audited
- State entities did not consistently comply with contract procurement and monitoring requirements
- Two of the contracts audited generally complied with all phases of the contract; Texas Lottery Commission and TxDOT
- One of the 14 reports had non-compliance in all four areas; HealthSelect contract for ERS
- Two other reports had non-compliance in procurement, formation and oversight; student assessments at TEA and the telecommunication contract at HHSC
- Uresti asked about how many contracts are entered into monthly or yearly
- Thousands of contracts for billions of dollars
- Schwertner noted at HHSC there are 36,000 contracts for $24 billion/year
- Uresti asked about budgeting and how that affects contracting; is budgeting not so specific that their contracts come up every two years
- Not necessarily
- Chairman Jane Nelson noted HHSC’s Sunset review was a great entre into this discussion; there will be Sunset recommendations trying to propose ways to rectify contracting for the agency; for the entire spectrum of agencies it will take a significant amount of work
- West asked about the SAO report; a majority of them did not have adequate conflict of interest reporting
- A majority of those issues were not documented in the annual report, or specific purchasers on a contract team may not have signed a conflict document; that occurred in 8 of the 14 contracts audited
- The HHSC telecommunications contract had conflict issues; the TEA Pearson contract had a provision that Pearson would have to report if they hired former TEA employees; that provision was removed from the contract by the agency
- Sen. John Whitmire asked if a $100 million contract having a conflict gets discussed with the Commissioner of the agency
- Commissioners were briefed; varied depending on engagement; For TEA communication was with a director who managed the contract; typically have weekly or bi-weekly status meetings; the agency has discretion over who attends those meetings
- Whitmire asked how unreported contracts could be found and studied on a dollar for dollar basis
- You would have to go through agencies’ accounting offices
- Nelson noted Sunset had a recommendation specific to TEA contracting; Sen. Campbell will be filing that bill
- Huffman asked who has authority to amend contracts such as the TEA contract where the provision was removed
- Typically it would be the chief executive who executes the contract but those amending the contract would vary
- Huffman noted the executive would probably have to execute an amended contract as well; for the HHSC telecommunications contract how did concern arise regarding conflict of interest or inappropriate actions
- Identified broad categories of issues; conflict of interest reporting, agency contract estimates
- The contract started in August 2008 with a term through 2013; there were issues with the payment process, payments were made for out of scope services, billing amounts were not verified, there was no documentation of review of the invoices and agencies were not receiving discounts that the contract provided for
- The contract as signed started at $47 million, the one million amount was an amount determined by the agency to initiate contract advisory team review
- Huffman asked how high up the ladder the contract goes at the agency
- Not advised as to who signed the contract
- Sen. Kel Seliger asked how the contract could start at $47 million then grow to over $100 million
- That was an issue with contract planning
- Seliger asked what conflict of interest looks like in contracting
- There is a specific nepotism form a procurement individual has to fill out; pretty straight forward
- Seliger asked if the agency allowed the conflict and did not report it
- Believe it was unidentified at the time the procurement happened
- Seliger asked when the TEA/Pearson contract was let
- Believe it was 2010
- Seliger asked when the agency received the audit report
- July of 2013
- Seliger asked if corrective action has been made
- The contract was amended to reinstate the provision that was removed
- Nelson noted what really concerns her is how much the legislature does not know about
- West asked about the TEA contract; when was the contract originally amended
- The amendment was made under the former commissioner in 2011
- West asked what employees were responsible for amending the contract under the former commissioner
- Believe it was routed to the commissioner for approval
- Nelson noted she would like to drill down on contracting as soon as agency hearings and tax break discussions are completed